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Market Extra

Aug. 30, 2021, 11:03 a.m. EDT

What an A.I.-based stock picker says about the market as delta variant delays ‘return to office’

By William Watts

The spread of the coronavirus delta variant poses the biggest threat to emerging-market economies, while a delayed “return-to-office” environment is a positive for earlier pandemic winners and residential real estate, according to a platform that uses artificial intelligence to screen stocks.

“Our system still sees a significant amount of risk” as the delta variant spreads, heading into back-to-school season, said Chris Natividad, chief investment officer at San Francisco-based EquBot, in an interview.

Read: Stock-market investors scour alternative data for delta variant clues—here’s what they found

EquBot, the issuer of the A.I. Powered Equity ETF (PSE:AIEQ) , which was one of the more popular ETF launches of 2017 , and the A.I. Powered International Equity ETF (PSE:AIIQ) , uses the natural-language processing capability of the Watson computer system developed by IBM (NYS:IBM) to scour a range of text, including news stories, corporate announcements and regulatory filings, social-media posts, tweets and other sources.

EquBot said its A.I. platform uses the company’s proprietary machine-learning algorithms, IBM Watson’s natural-language processing capabilities, and tools known as knowledge graphs to build portfolios.

AIEQ was up more than 20% in the year to date, roughly in line with the S&P 500, while AIIQ was up more than 11%, according to FactSet.

ETF Wrap: Rise of the robots, and leveraged ETFs are here to stay

So what is the platform saying about the outlook?

As companies scale back plans for returning employees to offices in the fall, stock plays around increased opportunities for hybrid and remote-working arrangements are likely to benefit, Natividad said.

Technology solutions continue to benefit from the constantly changing workplace conditions, he said. Meanwhile Google parent Alphabet Inc. (NAS:GOOG) (NAS:GOOGL) , Atlassian Corp. (NAS:TEAM) , and WIX.com Ltd.  (NAS:WIX) are among the highest scoring technology names with demand for digital advertising, productivity tools, and cloud-based solutions continuing to grow, according to Natividad.

When it comes to real estate, the data continue to show increased rental and purchase demand in states with lower income tax, as well as in other areas that have been popular with workers taking advantage of remote- or hybrid-working arrangements.

Meanwhile, warnings from the Centers for Disease Control and Prevention of high-risk and severe COVID outbreak potential added to negative sentiment, which remains a headwind for cruise operators. Overall, the delta variant is delaying the timing of a return to normal operations in many travel-related businesses, including hotels, oil and gas and transportation, Natividad said.

High negative social-media sentiment is also seen in back-to-school postings containing COVID safety information, with youth personal protective equipment, or PPE, purchases becoming an item added to back-to-school shopping lists.

In the U.S., the seven-day average of deaths stood at 1,233 as of Thursday,  according to a New York Times tracker,  or double the number counted two weeks ago and surpassing the 1,000 threshold for the first time since March . Hospitalizations, which were above 100,000 on Thursday to match levels last seen in the winter, declined to 96,568, the tracker showed, while the average daily number of new cases is up 24% from two weeks ago at 156,296.

Stocks and commodities saw selling pressure earlier this month as worries around the spread of the delta variant appeared to become a significant worry for market participants. But those assets bounced back strongly last week, with the S&P 500 (S&P:SPX) and Nasdaq Composite (NASDAQ:COMP) trading at all-time highs on Friday and the Dow Jones Industrial Average (DOW:DJIA) on track for a weekly gain.

Still, the delta variant remains a top risk factor for business disruption and downside market volatility in the U.S., Natividad said, while the EquBot system signals show the variant being the biggest drag on emerging market economies, while the U.K. and foreign developed markets are projected to adapt and recover more quickly.

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